Why Kandi Technologies Shot Higher and Apollo Group Fell After Hours

Stocks kicked off the week with a bang thanks to a strong report from Citigroup and more M&A deals in the health-care sector. The Dow Jones Industrial Average (DJINDICES: ^DJI) finished back above 17,000, gaining 112 points, or 0.7%, to finish at 17,055, setting an intraday record of 17,088. Elsewhere, the S&P 500 added on 0.5% and the Nasdaq moved up 0.6%.

Citigroup shares finished up 3%, despite the bank's coughing up $7 billion to pay a Department of Justice fine for mortgage securities violations. The DOJ had charged that the bank misled investors about the quality of mortgage-backed securities it was selling, a key issue at the heart of the housing bubble that lead to the financial crisis. The payment is the largest ever in the U.S. for civil fraud. Still, investors sent shares rising as the bank beat estimates, with adjusted earnings per share coming in at $1.24, flying past expectations of $1.05. The bank took a $3.8 billion pre-tax charge because of the DOJ fine, meaning unadjusted earnings were just $0.03. Revenue fell 6% to $19.3 billion but also beat estimates at $18.9 billion as the bank grew loans and reduced operating expense.

In the health-care world, two major deals shook up the market today as AbbVie seemed poised to but out Shire for $53 billion, taking advantage of the company's Ireland headquarters for tax avoidance purposes. We've seen that pattern emerge as last month Medtronic acquired Covidien, and earlier Pfizer pursued a takeover of AstraZeneca. AbbVie shares finished down 0.2% on the news, while Shire finished up 2% as the deal is not fully complete. Elsehwere, generic drugmaker Mylan agreed to buy Abbott Laboratories' specialty and branded generics business outside the U.S. in all-stock worth $5.3 billion. Both stocks gained on the news.

Also moving higher today was Kandi Technologies (NASDAQ: KNDI) , which jumped 27% after the electric-vehicle maker reported sales at its joint venture more than tripled in the secod quarter from the previous quarter, climbing 238% to 4,114. Kandi not only makes electric vehicles, but plans to build EV-sharing networks in a number of cities in China, having already begun in Hangzhou. The stock could be an appealing play on both EVs and China, where eco-friendly vehicles figure to be a winner with the heavy pollution in China. However, the stock has been volatile lately after a huge run up to $23 as it's come under investigation by the SEC for accounting issues and is not yet profitable. Today, CEO Hu Xiaoming said demand for EVs is growing "significantly," and public policy has been supportive of the new technology as the government recently moved to waive the 10% sales tax on EVs through 2017. Kandi will report quarterly results on August 11. The news also lifted Tesla Motors shares 3.9% as increased EV-demand in China benefits the high-end EV-maker as well.

Finally, Apollo Education Group (NASDAQ: APOL) shares were down 3.6% after hours as the University of Phoenix parent has said the Education Department plans to review its administration of the federal financial aid program. The review is a regular one, but several schools have gotten into hot water lately as the government has cracked down on abuses of the federal aid program as many students have graduate from for-profit colleges without the tools find employment. Laws require for-profits to spend a certain amount of their budget on education, as opposed to marketing, and show that they are making good use of federal aid money. The sell-off seems to indicate that investors fear possible sanctions against Apollo as a result of the review.

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This is what the Company said in its Annual Report on Form 10K for the year ended December 31, 2013:

The Company has been furnishing documents to the Denver Regional Office of the Securities and Exchange Commission in response to a document subpoena issued on November 21, 2013 regarding a matter known as In the Matter of Kandi Technologies Group, Inc. As indicated in

the subpoena, the investigation is a fact-finding inquiry and does not mean that the Company or anyone has broken the law. The Company has cooperated, and is cooperating fully, with the SEC in this matter and will continue to supply the SEC with whatever additional information and material that is requested. The Company does not have any information, at present, as to the duration or outcome of this investigation. The Company does not anticipate a negative result.

This is what we know:

On June 20, 2014 Kandi filed an S-3 Mixed Securities shelf registration for up to $300 million. Pryor Cashman LLP was identified as the Agent of Service for the S-3 filing. Pryor Cashman is a new law firm for the Company, a prestigious NYC law firm, http://bit.ly/1qRcrMl. McKenna Long Aldridge had served as Agent of Service on all the Company’s previous securities filings.

Any law firm serving as the Agent of Service, in a new client relationship especially, is not going to be party to a registration statement filing if there is some material investigation either pending or underway with the Company that would impair the likelihood of the registration statement becoming effective. In fact, during Pryor Cashman’s due diligence before undertaking Kandi as a client, they would have satisfied themselves as to the nature of SEC matter disclosed by the Company.

As the Company stated in the Form 10-K, “The Company does not anticipate a negative result.” And that is what we know.

KNDI "Investigation" couldn't be too serious. In that it was not even mentioned in their subsequent Q1 10Q and on June 6, the SEC cleared a registration covering underlying shares for warrants given in a 2010 financing. Based on History, a sign that the SEC does not feel there is/was any serious problem or they wouldn't have allowed new shares to be put into the market.